8.—3.

If the banks thought there was going to be an excess of imports, would not your line of action then be to cancel the unexhausted overdrafts on imports ? —Oh, no ; the banks have not adopted the policy of calling in advances that are on good security. I was not referring to that at the moment. If you thought any time there was going to be too many imports, instead of first making an alteration in the exchange-rate, would you not set about it by first of all cancelling the unexhausted overdraft authorities of imports ?—Do you mean to the extent that a man may have an overdraft arranged but had not drawn to the full amount ? Yes ? —No ; if the security is satisfactory the arrangement stands ; they do not depart from the arrangement, though of course that is subject to the general principle that bank advances are repayable on demand. It is a safeguard, but you do not find in practice that this is exercised. Then your answer is to the effect that it is not the practice of the banks to be, shall we say, liberal on the one hand and somewhat stringent on the other in the matter of advances as a factor to adjust any swing of the trade situation they can see ? —I should say not. The position usually has been that the people who cause the maladjustment can be induced to stop by fixing interestrates in accordance with the demand. If the interest-rate goes up, those who have an effective demand can still have their advances ; the others will cease causing a situation of maladjustment which is not an advantage to any country. The overplus of imports must be pressure on your London funds ; if you do not interfere with the exchange-rate for long periods, how do you direct those funds ? Mr. Shaw : The fluctuation, if it is only a matter of a couple of pounds, is not enough to regulate anything, either to increase or restrict. It is rather different when you come to the question of 125 per cent. ; that is quite definitely a deterrent, but not when the old exchange-rate used to be something under £1. If there was a change—it might be 10s. —that was not sufficient to act as a deterrent, though it possibly may have reflected a certain amount of strain on London funds. I think that the banks would of necessity (and have in the past to my knowledge) restrict, say, credits with the view of preventing too many imports. It is more or less done in connection with a man s own position, as Mr. Fussell said. It is the proper banking practice to put pressure on in those particular cases, otherwise you might run right out of London funds. Mr. Ashwin.] Exactly ; that is the point. I was trying to get at the method. Mr. Fussell: You mentioned a shortage of London funds arising from increase in imports. The practice for many years in New Zealand has been for an almost constant stream of London borrowing on account of this country to cause a stream of London funds to be made available, so that increases in imports would not be the strain on London funds that they would otherwise be. This was a young and developing country and there was plenty of scope for using borrowed money, and that enabled us to import more than we otherwise would have done without pressure or interference with the exchange-rate. Mr. Ashwin.] Quite so, but apart from that, this is going to put the total amount of imports up by the amount of the loan, but apart from that the system is likely to get out of balance. It did in 1920 or 1921, and I was endeavouring to ascertain what method the bank used to check any actual overimportation or any threatened importation. Preferably they should act when the is threatened ? —ln 1921 the advances were greater than the deposits. Also in 1921, the deposits being lower, deposit rates were put up, and on the same date, to preserve a balance, the advance rates were put up. The result was that shortly afterwards —two years afterwards —the deposits were in excess of the advances. The effect of that must have been that putting up your advance rate must have discouraged your imports ? —To the extent that it was so, if it was so. The main thing we had in view was to restore that balance in New Zealand, because we considered it bad to have that maladjustment. In correcting that, the very people who were causing it were deterred. If the banks had said, instead of correcting the position gradually by operating the supply of and demand for credit, we will do it indirectly by altering the exchange-rate, the effect would be that it would not necessarily fall on the people causing the maladjustment. It would be a transfer of wealth from one section of the community to another section, and would be inequitable. To the extent that any maladjustment would cause a lowering of the exchange-rate at a time when we are on a par with sterling it would mean some sort of adjustment by way of giyld movements or other such movements. Mr. Lye.] I am not going to criticize the administration of the banks or go into technical sides of banking or currency, because I am not an expert, but I wish to elicit a certain amount of information on questions of public interest. First, I would like to ask Mr. Fussell if he considers the banking and monetary system of to-day fairly satisfactory, sound, or is there room for appreciable improvement in the methods employed ? —To what extent do you mean " methods employed " ? I consider improvements on the lines I have mentioned such as reduction of the cost of credit might be made, but Ido not see there is any lack of credit available for sound purposes. I would like to see that credit cheaper. The statement is being freely made throughout the country that to-day there is a great shortage of credit and currency. Mr. Fussell: No shortage of credit is suggested, but if a person has nothing to give, nothing in demand in any shape or form he cannot get credit; if you have no goods to express in money you cannot get the money. Mr. Lye.] If the banking system is the cause of our troubles, bringing about a lack of purchasingpower, will you agree that it becomes a first public duty of a person, if he has a solution to advance, to advance it for the purpose of examination ?—That is undoubtedly so, but you are arguing on the assumption that our troubles are caused by the banking system..

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